Please see the following message from Ted Murphy at Sidley Austin LLP.
As you have likely heard, President Trump announced on social media yesterday that the United States has agreed to a trade deal with Vietnam. According to the social media post, the terms of the deal are (1) Vietnamese-origin goods will be subject to a base line tariff of 20% upon import into the United States; (2) Vietnamese-origin goods considered to be “Transhipping” goods will be subject to a 40% U.S. tariff; (3) Vietnam will reduce its tariffs on U.S.-origin goods to 0%. While the text of the agreement has not been made public (and is likely still be negotiated, so it may not be available for some time), I wanted to provide a few thoughts based on what we (think we) know about the deal thus far.
First, the U.S. tariffs. While it is not clear what “Transshipping” will be defined to mean exactly, it is clear that it will mean Vietnamese-origin product with some amount of Chinese content (it may say “third country content”, but this provision is undoubtedly aimed at Chinese-origin content). In other words, this agreement creates a new rule of origin for the application of tariffs. Prior to this agreement, if you produced a good that was last substantially transformed in Vietnam under the U.S. customs rules, the good would be subject to the tariff applicable to products of Vietnam. If the good was not last substantially transformed in Vietnam, and the essence imparting component was Chinese origin, the good would be subject to the tariffs applicable to products of China. This agreement creates a new category — goods last substantially transformed in Vietnam under the traditional U.S. customs rules, but that contain a certain amount of Chinese content. This new category of goods will be subject to the 40% rate. This is a big change and could impact a significant percentage of product depending on where the threshold for Chinese content is set.
Second, will this new type of rule of origin apply to other countries that benefitted from the shift in production out of China based on the Section 301 China tariffs from President Trump’s first term? Thailand, Cambodia, Malaysia, Mexico?
Third, does the new base line tariff replace the current MFN/NTR rates of duty, or be in addition to the MFN/NTR rates? So, will the rates be 20% + the existing MFN/NTR rate, or just 20% (for Vietnamese origin goods that do not meet the “transshipping” threshold)?
Finally, what is the President’s legal authority for entering into a trade agreement of this type? A trade agreement that imposes tariffs and adopts a new rule of origin would seem to require Congressional approval. If the Administration seeks to rely on delegated authority under the International Emergency Economic Powers Act (which was the cited legal basis for imposing the reciprocal tariffs in the first place), this issue will certainly be litigated.
The Vietnam deal is the first of a series of (framework) agreements we expect the Administration to announce in the coming week. What has been disclosed thus far raises some important questions that go well beyond just trade with Vietnam.
If you have any questions, please contact our office.